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April 29, 2024

Indian Bond Yields Expected to Dip as Focus Shifts to Fed Decision

At the onset of the week, Indian government bond yields are anticipated to experience a slight ease as oil prices and US Treasury yields retract from recent highs. However, all eyes remain fixed on the Federal Reserve’s impending monetary policy decision.

According to a trader from a primary dealership, the benchmark 10-year Indian yield is projected to fluctuate within a range of 7.16 per cent to 7.21 per cent, following its previous close at 7.1870 per cent. The trader noted that Friday’s auction saw robust demand, leading to follow-up buying in the secondary market. This momentum is expected to persist, supported by the mild easing in Treasury yields and oil prices. Nonetheless, the benchmark is likely to hold within the 7.15 per cent to 7.16 per cent levels.

US yields saw a decline on Friday following data showing that a key inflation gauge was in line with expectations. The Personal Consumption Expenditures (PCE) price index rose by 0.3 per cent last month and 2.7 per cent annually. Although this data had minimal impact on US rate cut expectations, with the Federal Reserve anticipated to maintain a cautious tone at its upcoming monetary policy decision on Wednesday.

Market analysts indicate that investors are now pricing in the possibility of around 34 basis points (bps) of cuts by the Fed in 2024, compared to over 150 bps anticipated at the beginning of the year, according to CME’s FedWatch Tool.

Additionally, the benchmark Brent crude contract saw a decline in Asian trading hours on Monday, as peace talks between Israel and Hamas in Cairo alleviated fears of a broader conflict in the Middle East, which could have heightened uncertainties over supply.

Last week, Indian bond yields experienced a decline after rising for the first three weeks of the new fiscal year starting April. Strong demand at the weekly debt auction further solidified the belief among traders that the current levels would mark the peak for yields.

In conclusion, while Indian bond yields are expected to dip slightly at the beginning of the week, all focus remains on the Federal Reserve’s monetary policy decision and its implications for global markets.

This rewrite focuses on the expected movement in Indian bond yields, the impact of US Treasury yields and inflation data, as well as the influence of geopolitical factors like oil prices and Middle East tensions, while emphasizing the significance of the Federal Reserve’s decision.

Jhumpa Lahiri

Jhumpa Lahiri

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